Alain Bertaud on how government intervention in land/housing markets can price a city’s poor out of the formal housing sector.
Given the recent debate about relaxing Washington, D.C.‘s building height restrictions, it’s worth revisiting the 2003 paper on height restrictions in Bangalore, India by UP scholar Alain Bertaud and UC Irvine’s Jan Brueckner. The paper suggests that the height restrictions impose significant welfare costs on Bangalore’s residents. As the city continues to grow over time it would be denser, more compact, and more affordable without the restrictions than with them.
In Bangalore, a building’s height is capped by a restrictions on its floor to area ratio (FAR). FAR is a building’s total floor area divided by the area of the land parcel on which it sits, so limiting FAR effectively limits building height.
Bertaud and Brueckner suggest that the FAR restrictions may have reflected a conscious decision. Higher FARs would presumably lead to higher densities in the city’s center areas, requiring improved public services and infrastructure investments — services and investments that city officials may may have felt ill-equipped to provide. But as the authors point out, FAR restrictions have remained the same even as the technical capacity of local government has improved. What’s more, in a growing city like Bangalore FAR restrictions simply push new development to the periphery. Whether the city grows up or out, the challenge of improving and expanding municipal services will remain.
By constraining the supply of housing, FAR restrictions raise its price. By limiting densities near the center of the city the restrictions cause the city to expand spatially and increase the average commute distance. To get an estimate of the welfare costs of the FAR restrictions, the authors focus on the increase in costs associated with the longer commutes at the urban edge. They estimate that building height restrictions in Bangalore impose additional commuting costs equivalent to 3 to 6 percent of the typical household’s consumption.
Welfare would be higher without the restrictions. And though removing the height restriction would require additional infrastructure spending in the city’s central area, the city would also be more compact at any given point in time. The reduced need to expand the infrastructure network would therefore offset the costs of improving infrastructure in the city center.
Find the full paper here (pdf).